Robust performance; remains the best play on Southern region February 09, 2016 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Rating BUY Price Rs374 Target Price Rs490 Implied Upside 31.0% Sensex 24,021 Nifty 7,298 (Prices as on February 09, 2016) Trading data Market Cap. (Rs bn) 88.9 Shares o/s (m) 238.0 3M Avg. Daily value (Rs m) 73 Major shareholders Promoters 42.30% Foreign 15.46% Domestic Inst. 23.01% Public & Other 19.23% Stock Performance (%) 1M 6M 12M Absolute (4.3) 2.4 13.5 Relative (0.7) 17.4 28.4 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2017 23.7 21.9 8.4 2018 30.6 28.4 7.7 Price Performance (RIC: TRCE.BO, BB: TRCL IN) The Ramco Cements (TRCL) reported Q3FY16 earnings way ahead of our expectation on the back of beat across the fronts. Demand in the region continued to remain sluggish due to subdued demand across sectors and delay in recovery expected on account of formation of new states. We expect recovery to kickstart in couple of quarters on the back of enhanced focus of state governments on infra spending, stabilisation of newly formed states, new capital development in Amaravati and revival in small scale housing demand sponsored under various state government schemes. In this backdrop, we like TRCL as the best play on recovery in the South underpinned by highly competitive operations. We reiterate BUY with TP of Rs490 (earlier TP: Rs447), an EV/EBITDA of 12xFY17. Beat across the counts: Marred by floods in Tamil Nadu, cement volumes fell 5.4% YoY to 1.63m tonnes, ahead of our estimate of 1.51m tonnes. Realisations rose 9.3% YoY (Rs424)/1.4% QoQ (Rs70) to Rs4,995, exceeding our estimate of Rs4,870. Total cost/t fell 13% YoY (Rs504)/0.6% QoQ (Rs20) to Rs3489 below our estimate of Rs3783 due to lower than expected freight cost and other expenses. Hence, EBITDA/t rose 2.6x/Rs930 YoY to Rs1506 ahead of our expectation of Rs1087. Led by higher margins, EBITDA rose 2.4x YoY at Rs2.4bn (PLe:Rs1.6bn). Aided by lower interest expense, PAT (adjusted for prior year tax write back of Rs119m) grew 4.6x YoY at Rs1.06b (PLe:Rs0.50bn). EPS estimates revised upward by 12%/7% for FY16/FY17: We revise upward our EBITDA estimate for FY16/FY17 by 11%/7% on the back of steep cut in costs. EPS estimate is revised upward by 12%/7% at Rs19.3/Rs23.7 helped by lower interest cost (due to lower interest rate) and higher EBITDA. Key financials (Y/e March) 2015 2016E 2017E 2018E Revenues (Rs m) 35,939 35,048 39,676 45,765 Growth (%) (1.1) (2.5) 13.2 15.3 EBITDA (Rs m) 6,622 10,181 11,622 13,913 PAT (Rs m) 2,361 4,590 5,636 7,277 EPS (Rs) 9.9 19.3 23.7 30.6 Growth (%) 135.9 94.5 22.8 29.1 Net DPS (Rs) 5.0 7.0 7.9 9.3 Q3FY16 Result Update (Rs) 450 400 350 300 250 200 150 100 50 0 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Profitability & Valuation 2015 2016E 2017E 2018E EBITDA margin (%) 18.4 29.0 29.3 30.4 RoE (%) 9.2 16.2 17.4 19.4 RoCE (%) 6.3 9.9 11.1 12.6 EV / EBITDA (x) 17.4 11.1 9.6 7.8 EV / Tonne ($) 142.1 128.4 127.2 13,053.1 PE (x) 37.7 19.4 15.8 12.2 P / BV (x) 3.4 3.0 2.6 2.2 Net dividend yield (%) 1.3 1.9 2.1 2.5 Source: Bloomberg Source: Company Data; PL Research Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q3FY16 Result Overview (Rs m) Y/e March Q3FY16 Q3FY15 YoY gr. (%) Q2FY16 9MFY16 9MFY15 YoY gr. (%) Net Sales 8,119 7,861 3.3 8,740 26,084 26,325 (0.9) Raw Material 1,398 1,604 (12.9) 1,119 4,346 5,156 (15.7) % of Net Sales 17.2 20.4 12.8 16.7 19.6 Staff Costs 638 567 12.4 682 1,940 1,685 15.1 % of Net Sales 7.9 7.2 7.8 7.4 6.4 Power & Fuel 1,153 1,572 (26.7) 1,358 3,968 5,402 (26.5) % of Net Sales 14.2 20.0 15.5 15.2 20.5 Freight and selling expenses 1,475 1,812 (18.6) 1,556 4,862 5,982 (18.7) % of Net Sales 18.2 23.1 17.8 18.6 22.7 Other Expenses 1,009 1,304 (22.6) 1,291 3,557 3,864 (7.9) % of Net Sales 12.4 16.6 14.8 13.6 14.7 Total Expenditure 5,673 6,860 (17.3) 6,005 18,673 22,089 (15.5) EBITDA 2,446 1,001 144.4 2,736 7,411 4,236 75.0 Margin (%) 30.1 12.7 31.3 28.4 16.1 Depreciation 679 626 8.4 671 2,018 1,877 7.5 Other income 109 317 (65.5) 199 610 1,001 (39.1) EBIT 1,876 691 171.4 2,263 6,003 3,360 78.7 Interest 418 485 (13.8) 453 1,358 1,465 (7.3) PBT 1,458 206 607.2 1,811 4,645 1,895 145.1 Extraordinary income/(expense) (120) PBT (After EO) 1,458 206 607.2 1,691 4,645 1,895 145.1 Tax 399 (24) NA 543 1,344 406 231.1 % PBT 27.4 11.4 32.1 28.9 21.4 Reported PAT 1,177 230 412.8 1,147 3,539 1,489 137.7 Adjusted PAT 1,059 230 361.1 1,267 3,301 1,489 121.6 Exhibit 2: Operating Metrics Y/e March Q3FY16 Q3FY15 YoY gr. (%) Q2FY16 9MFY16 9MFY15 YoY gr. (%) Volume (m te) Cement 1.63 1.72 (5.4) 1.71 5.15 5.79 (11.0) Cement Realisations (Rs/te) 4,995 4,570 9.3 4,926 4,982 4,454 11.9 Cement EBITDA/ te (Rs/te) 1,506 577 161.2 1,417 1,356 637 112.7 Cement revenue 8,213 8,149 0.8 8,603 26,204 26,718 (1.9) Windmills revenue 37 61 (39.9) 354 529 698 (24.1) February 09, 2016 2
EPS estimates revised upward by 12%/7% for FY16/FY17 We revise our volume estimate marginally upward by 1%/1% for FY16/FY17 to 6.9m/7.6m t. Realisation estimates for FY16 are kept unchanged at Rs4995 while realisations for FY17 are marginally cut by 1% to Rs5143. We increase our EBITDA/t estimate for FY16/FY17 by 10%/6% to Rs1,400/Rs1,457 due to lower costs. Hence, EBITDA estimate for FY16/FY17 is revised upwards by 11%/7% to Rs10.2bn/11.6bn. PAT estimate for FY16/FY17 is revised upwards by 12%/7% to Rs4.6bn/5.6bn. Exhibit 3: Change in estimates FY16 FY17 Prior to Post % change Prior to Post % change Revenue (Rs m) 34,670 35,048 1.1 39,618 39,676 0.1 EBITDA (Rs m) 9,211 10,181 10.5 10,834 11,622 7.3 PAT (Rs m) 4,117 4,590 11.5 5,256 5,636 7.2 EPS (Rs.) 17.3 19.3 11.5 22.1 23.7 7.2 Cement vol (m tonnes) 6.8 6.9 1.1 7.5 7.6 1.1 Realisation/t Cement 4,996 4,995 (0.0) 5,193 5,143 (1.0) Total cost/t Cement 3,721 3,594 (3.4) 3,825 3,686 (3.6) EBITDA/t Cement 1,275 1,401 9.9 1,368 1,457 6.5 February 09, 2016 3
Income Statement (Rs m) Net Revenue 35,939 35,048 39,676 45,765 Raw Material Expenses 6,805 6,497 7,348 8,350 Gross Profit 29,133 28,550 32,328 37,415 Employee Cost 2,287 2,607 2,946 3,329 Other Expenses 20,224 15,763 17,760 20,174 EBITDA 6,622 10,181 11,622 13,913 Depr. & Amortization 2,499 2,761 2,815 2,905 Net Interest 1,938 1,784 1,718 1,613 Other Income 1,379 922 963 1,000 Profit before Tax 3,564 6,558 8,052 10,395 Total Tax 1,141 1,967 2,416 3,119 Profit after Tax 2,424 4,590 5,636 7,277 Ex Od items / Min. Int. (63) Adj. PAT 2,361 4,590 5,636 7,277 Avg. Shares O/S (m) 238.0 238.0 238.0 238.0 EPS (Rs.) 9.9 19.3 23.7 30.6 Cash Flow Abstract (Rs m) C/F from Operations 9,417 8,813 9,511 11,178 C/F from Investing (5,065) (3,847) (5,839) (5,831) C/F from Financing (4,179) (4,414) (3,136) (3,240) Inc. / Dec. in Cash 172 552 535 2,106 Opening Cash 401 573 1,125 1,661 Closing Cash 573 1,125 1,661 3,767 FCFF 1,017 5,717 5,279 6,925 FCFE (966) 3,517 4,779 6,425 Key Financial Metrics Growth Revenue (%) (1.1) (2.5) 13.2 15.3 EBITDA (%) 29.4 53.7 14.2 19.7 PAT (%) 135.9 94.5 22.8 29.1 EPS (%) 135.9 94.5 22.8 29.1 Profitability EBITDA Margin (%) 18.4 29.0 29.3 30.4 PAT Margin (%) 6.6 13.1 14.2 15.9 RoCE (%) 6.3 9.9 11.1 12.6 RoE (%) 9.2 16.2 17.4 19.4 Balance Sheet Net Debt : Equity 1.0 0.8 0.7 0.5 Net Wrkng Cap. (days) 147 130 135 138 Valuation PER (x) 37.7 19.4 15.8 12.2 P / B (x) 3.4 3.0 2.6 2.2 EV / EBITDA (x) 17.4 11.1 9.6 7.8 EV / Sales (x) 3.2 3.2 2.8 2.4 Earnings Quality Eff. Tax Rate 32.0 30.0 30.0 30.0 Other Inc / PBT 38.7 14.1 12.0 9.6 Eff. Depr. Rate (%) 3.5 3.7 3.7 3.7 FCFE / PAT (40.9) 76.6 84.8 88.3. Balance Sheet Abstract (Rs m) Shareholder's Funds 26,452 30,124 34,633 40,455 Total Debt 27,119 24,919 24,419 23,919 Other Liabilities 12,320 12,273 13,156 14,293 Total Liabilities 65,890 67,316 72,208 78,667 Net Fixed Assets 51,503 52,741 55,927 59,022 Goodwill Investments 3,558 3,558 3,558 3,558 Net Current Assets 10,830 11,016 12,723 16,086 Cash & Equivalents 619 1,171 1,706 3,812 Other Current Assets 15,024 15,355 16,867 18,878 Current Liabilities 4,813 5,509 5,850 6,604 Other Assets Total Assets 65,890 67,316 72,208 78,667 Quarterly Financials (Rs m) Y/e March Q4FY15 Q1FY16 Q2FY16 Q3FY16 Net Revenue 9,614 9,225 8,740 8,119 EBITDA 2,386 2,230 2,736 2,446 % of revenue 24.8 24.2 31.3 30.1 Depr. & Amortization 622 668 671 679 Net Interest 96 185 254 309 Other Income 378 302 199 109 Profit before Tax 1,669 1,377 1,811 1,458 Total Tax 735 402 423 280 Profit after Tax 934 975 1,387 1,177 Adj. PAT 934 975 1,267 1,059 Key Operating Metrics Volume (mn te) Cement 7.5 6.9 7.6 8.4 Cement Realisations Cement (Rs/te) 4,704.8 4,930.7 5,078.6 5,332.5 Cement EBITDA (Rs/te) 803.0 1,401.0 1,456.6 1,591.7 Raw material cost (Rs/te) 887.5 941.5 968.0 999.9 Power & Fuel cost (Rs/te) 918.1 693.6 707.1 732.5 Freight cost (Rs/te) 1,037.8 957.8 986.6 1,026.0. February 09, 2016 4
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